Coca-Cola revenues slip, but it's staying focused on soft drinks

A soft U.S. dollar and cautious consumers in many world markets kept Coca-Cola Co. (KO) profits in check in the third quarter. But Coke executives stressed on Tuesday that the company's fundamentals remain strong as does growth in key emerging markets.

"Our company's focus on a consistent set of strategic initiatives is proving successful," said Chairman and Chief Executive Muhtar Kent, speaking to a group of investors on a conference call after the earnings release. Kent noted, for example, that volume rose by 37 percent in India, 15 percent in China and 3 percent in Brazil.
Despite those laudable increases, the Atlanta-based soft-drink giant reported Tuesday that its profit rose less than 1 percent to $1.92 billion, or 81 cents a share, in the quarter that just ended Oct. 2. Revenue slumped to $8.04 billion. The results, which were largely on par with analyst estimates, show the effects of the lingering recession, the company said.

"It is clear that global economic challenges have impacted people in every market around the world," Kent said. He added that economic problems will continue to weigh on consumers through 2010, especially in markets such as Russia and Eastern Europe, where consumers remain particularly cautious.

But Kent focused on the positive, enumerating a number of initiatives Coca-Cola has put in place to keep ahead of the competition. In addition to developing products specific to markets such as China, where Coca-Cola sells its increasingly popular Minute Maid Pulpy Super Milky dairy drink, the company is keen on appealing to U.S. consumers by offering resized and repackaged products in a bid to offer better value.

Maintaining an upbeat message is important in the increasingly consolidating beverage industry and one in which Coca-Cola's chief competitor, PepsiCo (PEP), under the leadership of CEO Indra Nooyi, appears on a roll. Earlier this month, PepsiCo reported its fiscal third-quarter profit rose 9 percent, in part on cost-control efforts, even as revenue dropped on weak beverage sales.

More recently, an announcement between PepsiCo and Anheuser-Busch to establish a procurement system in the U.S. to act as one company has increased speculation that a merger between the No. 2 soft-drink maker and Belgium-based Anheuser-Busch InBev (BUD) may not be far off.

But if creating a company that sells both soft drinks and alcoholic beverage is the path for growth, it's one that Coca-Cola's Kent is steering clear of, telling investors Tuesday that such "integration" would be a strategic misstep.

"You're talking about a different consumer, different consumption pattern, different regulation," he said. "I think it's absolutely important to keep the strategic functions dedicated to each side."

Nevertheless, a pact that provides synergies in warehousing and back-office functions (of the kind reached between PepsiCo and Anheuser-Busch), is something that in "this day in age you can't leave...on the table," he said. "You've got to take advantage of those."

Kent's dogged insistence of staying focused solely on soft drinks and noncarbonated beverages is clearly a different strategy from that of Pepsi, which also sells Quaker Oats products and Frito-Lay brand snacks. As the cola wars soldier on, what's clear is that the two soda giants see two different paths to victory. Consumers will determine who the ultimate victor will be.